Do Not Settle for a Stubborn Tenant

Problematic tenants cause issues, obviously. If you are selling residential property with vacant possession and have a tenant whose residential tenancy agreement (‘RTA’) has expired prior to settlement then you need to get that tenant off the property before the settlement date. If you don’t, you run the risk that you will be in breach of contract.

The reason why is because you will not have provided the buyer with vacant possession at settlement. This issue was addressed in the case of Gao v Shek & Shiu [2019] QDC 179 whereby the buyer terminated the contract due to the tenant still residing in the property on the settlement date (26 September 2017) when his RTA had already expired. Shortly thereafter, the seller brought a claim against the buyer in the Brisbane Supreme Court for a wrongful termination.

The Law

The RTA between the seller and the tenant was terminated as per an order from the Queensland Civil Administrative Tribunal (‘QCAT’) on 18 September 2017. Clause 5.5 of the Standard Real Estate Institute of Queensland (‘REIQ’) contract (the type of contract used for the purchase and sale of much residential property in Queensland) says that “on the settlement date, in exchange for the balance purchase price, the seller must provide the buyer with vacant possession of the land and the improvements, with the exception of the tenancies”. Due to the RTA having expired prior to the settlement date and the tenant remaining in possession of the property at settlement, the tenant was trespassing on the property at the time of settlement and on that basis the Court found the seller had breached its obligation under the abovementioned clause.

Importantly, at trial, the seller’s lawyers argued that because the buyer inspected the property at approximately 2:00 pm on the settlement date and saw the tenant still residing upon the property, the buyer had accepted the tenant retaining possession of the property. The presiding judge rejected this argument.

Failure to provide a buyer with vacant possession is a breach of an ‘essential term’ of an REIQ contract. In accordance with clause 9.1, in the event of a breach of an ‘essential term’, the buyer (in the case of the seller’s default) may terminate the contract – which is what happened.

The Verdict

The seller’s claim was dismissed. The presiding judge ruled the buyer validly terminated the contract due to the seller’s abovementioned breach and ordered the seller pay the buyer’s costs of $81,500 with interest of $8,740.60.

Article co-authored by Thomas Conn, Solicitor